Earlier this month, the government had introduced a pre-packaged insolvency resolution process for stressed MSMEs by amending the insolvency law.
Under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT).
“With the outbreak of the COVID crisis, the stress on hospitality, luxury retail, tour operators, lodging and restaurant operators has increased considerably. I expect around 20-25 stressed MSME accounts to be resolved under the pre-packaged insolvency resolution regime in the coming months,” Bank of Maharashtra’s general manager (credit – large and mid corporate, MSME) Sanjay Rudra said.
He was speaking at a webinar organised by MVIRDC World Trade Center, Mumbai and All India Association of Industries.
He said under the pre-packaged insolvency resolution system, the government has given an opportunity for MSMEs to resolve their stress at an early stage while holding control over their business.
“Now, MSMEs should maintain complete transparency in the whole resolution process to regain trust and confidence of lenders,” Rudra said.
Speaking at the webinar, AZB & Partners cofounder Bahram N Vakil said MSME promoters should file for resolution with the NCLT only after having a robust base plan.
“If the promoters could come out with a resolution plan with a minimum possible haircut for operational creditors and if it is also acceptable to the committee of creditors, then the chances of such plans being challenged in the Swiss challenge auction are less,” he added.
Emphasising that MSME promoters and bankers should work on a reasonable price discovery of the underlying asset, Vakil pointed out that more often, the fair value estimation of the underlying asset is the sore point of litigation among contending parties.